Central American Development: Two Decades of Progress and Challenges for the Future

This report provides a summary of the extraordinary political, economic, and social development policy transformations witnessed in Central America over the past 20 years. The author also identifies long-term challenges that pose both risks and opportunities for Central America and outlines how they can be incorporated into a new development agenda.

Central America has evolved from a region characterized predominantly by rural and agricultural populations into one where the majority of people reside in urban areas; from societies with autocratic governments and periodic civil wars into ones with peaceful transitions between democratically elected governments; and from volatile, resource-dependent economies into stable global exporters. Despite these gains, important challenges remain. The region has not generated sufficient employment to keep pace with demographic growth, large income inequalities persist even as poverty has declined modestly, and violence and public insecurity have increased.

In the long run, three challenges—a shifting global economic order, vulnerability to natural disasters and climate change, and demographic shifts in the region—as well as the consequences of these factors: uncertainty in financial markets and regulatory frameworks, increasing natural disaster and emergency-related costs, and population could generate a negative economic impact. However, the author expresses optimism that countries in the region can leverage these challenges to play a greater decision-making role in the global economy, move to a more environmentally friendly economy, and take advantage of the demographic window to invest in young people.

The author calls for a new generation of economic policies that embodies these principles in addition to reducing gaps in access to public services, moving to higher value-added production, and diversifying exports.